Monster Deal Talk Showing 80% Premium With $15 a Share: Real M&A

Monster Worldwide Inc. (MWW), the online
recruiting service that has lost almost 90 percent of its value,
is poised to extract a record takeover premium for investors.

Chief Executive Officer Salvatore Iannuzzi said last week
he is weighing options to boost the company’s shares after
Monster traded as low as 0.67 times the value of its net assets.
Even after the hiring of bankers helped spur a 20 percent gain
in its stock price, the $1 billion company was still cheaper
yesterday relative to its earnings and book value than at least
96 percent of U.S. Internet software and services firms greater
than $500 million, according to data compiled by Bloomberg.

The world’s largest Internet jobs board, valued at more
than $7.5 billion in 2006 before U.S. unemployment reached 10
percent and LinkedIn Corp. (LNKD) emerged as an alternative, could
still fetch as much as $15 a share in a takeover by a competitor,
said Matrix Asset Advisors Inc. Buyers would be paying an 80
percent premium -- the highest ever among similar-sized deals in
the human resources and e-commerce services industries -- to get
a hold of the New York-based company’s 23 percent international
sales growth last year from operations in more than 50 countries.

“It should wrest a high premium,” David Katz, chief
investment officer at New York-based Matrix, which oversees
about $935 million and owned Monster shares as of February, said
in a telephone interview. Acquirers would still be “getting it
at a steal. It’s got a reasonable likelihood of happening
because you can pay a nice premium and still everybody comes out
having done well,” he said.

Hiring Bankers

Andi Rose, a spokeswoman for Monster from the public-
relations firm Joele Frank, Wilkinson Brimmer Katcher, declined
to comment on whether the company has been approached by a
potential buyer and at what price it would be willing to sell
itself.

Monster said this week it hired Stone Key Partners LLC and
Bank of America Corp.’s Merrill Lynch to review “strategic
alternatives” following an almost six-year slide in its shares
that handed investors losses of about 86 percent. The company,
which charges employers to post job advertisements and to search
resumes on its sites such as Monster.com, has been hurt amid a
tepid hiring environment in the U.S. and the emergence of
competition from social-networking sites such as LinkedIn, which
threaten its market share.

‘Tremendous Amount’

“We’ve created a tremendous amount of shareholder value,”
CEO Iannuzzi said at an investor conference in Boston on March 1.
“But the price does not reflect that.”

“Our shareholders deserve a better return,” he said.

After losing money in 2010, Monster posted profit in 2011
that fell short of its initial projections. The company missed
estimates again in January when it said first-quarter earnings
will be break-even to 4 cents a share, less than the 9-cent
average of analysts’ estimates compiled by Bloomberg at the time.

Three days before Iannuzzi’s comments, Monster was trading
at a 33 percent discount to the value of its assets minus
liabilities, the company’s lowest price-to-book value on record,
data compiled by Bloomberg show.

Even after the stock’s 20 percent gain since Iannuzzi
announced he was exploring options, Monster still traded
yesterday at only 0.84 times book value, the second-cheapest of
33 U.S. Internet software and services firms with market values
of more than $500 million, data compiled by Bloomberg show. AOL
Inc. (AOL) was the least expensive at 0.74 times. Monster’s price-to-
earnings ratio of 13 was also lower than every company in the
industry except for J2 Global Inc. (JCOM) at 12 times, the data show.

Record Premium

Monster is trading at “a discount to virtually anybody
else in the marketplace,” Douglas Arthur, an analyst with
Evercore Partners Inc. in New York, said in a phone interview.
“Once you’ve announced that you’ve retained investment banks to
assist in a strategic review, all cards are on the table,
including an outright sale of the business. From the market’s
point of view, I think anything short of that would be a
disappointment.”

A strategic buyer may pay $14 a share to $15 a share, said
Matrix’s Katz, valuing the company’s equity at as much as $1.85
billion. At 80 percent more than Monster’s closing price of
$8.33 yesterday, it would top the 53 percent premium Randstad
Holding NV (RAND) offered for Vedior NV in 2007 as the most expensive
for a human resources or e-commerce services takeover greater
than $1 billion, according to data compiled by Bloomberg that
dates back to 1996. The average is 21 percent, the data show.

Previous Record

Monster would need to fetch at least $12.79 a share in an
acquisition to exceed the prior record of 53 percent. A private
equity buyer would be willing to pay closer to $12 to $12.50 a
share for Monster, Katz said, equating to as much as a 50
percent premium.

While Tobey Sommer, an analyst at SunTrust Robinson
Humphrey Inc. in Nashville, Tennessee, says a “broad range of
acquirers” could financially justify paying $11 to $12 a share,
the price of a deal and level of interest will be based, in part,
on expectations for the U.S. unemployment rate this year and its
effect on Monster’s earnings.

Even at $15 a share, Monster would be valued at less than
the average of publicly traded peers relative to book value and
earnings in the last 12 months, the data show.

Monster was speculated as an acquisition target at least 20
times in the five years through December 2011 by electronic news
services, brokerages or newspapers, data compiled by Bloomberg
shows. Still, the rumors never presaged an actual transaction.

‘A Transition’

“While we think that there are a list of potential buyers,
including private equity, we don’t see anything imminent
considering the company is going through a period where its
growth trajectory is going through a transition,” Jim Janesky,
a an analyst at Nashville, Tennessee-based Avondale Partners LLC,
said in a phone interview.

Suitors may still be drawn to Monster’s international
business, which posted an operating profit in 2011 for the first
time in three years, said SunTrust’s Sommer and Evercore’s
Arthur.

Monster is “the best fully-developed international player
from a U.S. point of view,” Arthur, who estimates a price tag
of at least $12 a share, said in a phone interview. “Those are
expensive markets to penetrate and more expensive to get market
leadership in, and Monster’s already there.”

‘This One’

Private equity firms could be enticed by Monster’s free
cash flow, said Bill Kavaler, a special situations analyst at
Oscar Gruss & Son Inc. in New York. Cash from operations after
deducting capital expenses will reach $108 million in 2013,
according to analysts’ estimates compiled by Bloomberg, a 23
percent increase from 2011.

“Private equity would be very interested in this one,”
Kavaler said in a phone interview. “What you’re really betting
on is an upturn in the U.S. labor market.”

The U.S. jobless rate unexpectedly fell to 8.3 percent in
January, the lowest level in three years, Labor Department
figures showed last month. The unemployment rate has dropped
every month since August, and economists surveyed by Bloomberg
project it will reach 7.25 percent in 2014.

‘A Different Way’

LinkedIn (LNKD), the social network for professionals that’s more
than eight times the size of Monster, may be interested in
buying Monster to add resumes and tap revenue from increased
corporate hiring that would accompany an improvement in the U.S.
jobless rate, according to Avondale’s Janesky.

“LinkedIn certainly has the resources to do something like
this, and they are in online recruitment in a different way,”
Janesky said. “It would be a challenge, but it does come to
mind as a potential company.”

Traders in the options market have never been more bullish
on the possibility of a takeover. Implied volatility, the key
gauge of options prices, for calls on three-month contracts that
pay off if Monster gains 10 percent surged 47 percent on March 1,
exceeding the cost of puts by the most since November 2007, data
compiled by Bloomberg show. Monster’s skew, a measure of prices
for puts versus calls, slipped to 0.967 on March 2, the lowest
on record.

‘Classic Takeover Candidate’

Demand is the highest for options that expire in June,
indicating that traders are betting on a transaction that month,
said Nicole T. Wachs, an options analyst at TradeKing Inc. in
Charlotte, North Carolina.

“It looks like a classic takeover candidate based on
what’s going on in the options market,” Wachs said in a phone
interview. “If somebody sees that they’re not dead yet and they
still have some potential, they’re going to scoop them up.”